Lack of certainty unsettles

Surging Chinese inflation and a dismal US jobs report are likely to keep Australian shares under the spell of global economic worries today, overshadowing the confirmation of crucial details about the carbon tax.

Fund managers think international investors in particular may keep avoiding the Australian market because uncertainties have not been alleviated, despite the unveiling yesterday of the carbon price scheme.

Futures tipped the benchmark S&P/ASX 200 to open 40 points lower this morning, following Friday’s 0.7 per cent decline on Wall Street when US unemployment was revealed to have climbed higher to 9.2 per cent in June and Chinese consumer prices rose at an annualised 6.4 per cent, their fastest pace in three years.

The Gillard government yesterday confirmed a carbon price scheme will begin on July 1 next year, starting at $23 per tonne of emissions, and announced tax cuts worth $15 billion, welfare payments and $10 billion worth of industry assistance over the next four years.

Although the government had previously pledged that the scheme would be revenue neutral, it now estimates it will cost $4 billion in the four years from July 1.

First Samuel chief investment officer Dennison Hambling said: “[What] struck me was they weren’t revenue neutral. That’s such a huge kick in the pants for everybody. I think that will weigh on the market and on sentiment to Australia."

Further adding to uncertainty is the possibility the scheme will change from the form announced yesterday.

“The only thing I was really looking for was confidence and certainty – the detail is less important," Mr Hambling said. “But I looked at the details and thought ‘gee, they’re going to play with that a lot’.

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“One side of politics or another, this is not how it’s going to look in three years’ time."

Political risk in Australia is becoming more of a concern for international investors, following last year’s proposed resources super profits tax, deadlocked federal election and the government’s numerous changes to healthcare regulation.

The initial starting price of $23 per tonne is at the lower end of the range expected by analysts and economists, giving some relief to industries that are expected to take the heaviest hit from the tax, including coalminers, steel manufacturers, heavy transport companies and building materials manufacturers.

Deutsche Bank estimated that a $20-per-tonne carbon price could reduce financial year 2013 net profit for Virgin Blue by almost 18 per cent, Qantas by more than 9 per cent, BlueScope Steel by more than 8 per cent and Orica by 5 per cent.

Net profit at companies including BHP Billiton, Boral, CSR, Santos, OneSteel, Rio Tinto and Woodside Petroleum could fall by up to 5 per cent in financial year 2013, based on the bank’s $20 assumption.

But the broker estimated that profits for Origin Energy and AGL could increase.

“Retail is in dire straits and they’ve got to be a bit careful because no tax is stimulatory. No tax helps economic growth."

Mr Kelly said the tax would be unlikely to trigger immediate changes to his investment portfolio.

He is negative on the outlook for coal stocks, which are likely to be the worst-hit sector when the tax comes into effect next year.

“We invest more in industrials and resources, and I’m like everyone else. Because there is so little detail, I don’t really know. If I was sitting on a whole pile of coal stocks, then I’d be worried," he said.

“They’ve had a great run. The whole sector longer-term is tied to China, which is good, but there’s very little value left in coal stocks and they were always going to get hit by some kind of political nastiness."